The mechanism of neutral VAT in Guatemala

Continuing with the VAT neutrality topic. To define the concept in this series of articles, it must be clarified that “The principle of tax neutrality is equivalent to the absence of adverse economic effects derived from taxation; the analysis of this principle of external neutrality concerning VAT is carried out in greater depth” (Tax Neutrality).

The mechanism for the manifestation of VAT neutrality is found in the recognition of the credit and the determination procedure of the obligation. In simple terms, art. 16 contains the material elements for this recognition and art. 20 contains the norm that deals with the report, that is the formal requirements.

In the interpretation of these rules, we take as an explanatory ruling that emanated from the Court of Justice of the European Union, which clarifies how VAT rules should be interpreted: “The fundamental principle of VAT neutrality requires that the deduction of the tax paid be granted if the material requirements are met, even if the taxable person has omitted certain formal requirements. From the moment the Tax Administration has the necessary data to determine that the material requirements are met, it cannot impose – concerning the right of the taxable person to deduct the VAT – additional requirements whose effect may be the absolute impossibility of exercising such right.

As long as the material requirements of the right to deduct VAT correspond to the referring court to verify they are met, the application of national regulations cannot be automatically prevented, because a formal requirement is not met, the exercise of the right to deduct the VAT incurred for an intra-community acquisition in the same period in which identical VAT is liquidated, without taking into account all relevant circumstances and, in particular, the good faith of the taxable person. The three months, established by the national regulations contested in the main dispute for the declaration of the VAT corresponding to an intra-community acquisition, cannot be assimilated to a preclusion period, in the sense of said jurisprudence, which entails the loss of the right to deduct. Union law does not prevent Member States from imposing, if necessary, a fine or a pecuniary penalty proportionate to the seriousness of the infringement to sanction the breach of formal requirements.

On the other hand, national regulations that systematically prohibit the exercise of the right to deduct VAT corresponding to an intra-Community acquisition in the same period in which identical VAT must be liquidated, without establishing that all relevant circumstances are considered and, in particular, the good faith of the taxable person, go beyond what is necessary, on the one hand, to ensure the correct collection of VAT, in the event that no amount of VAT is owed to the Tax Administration, and, on the other hand, to prevent tax fraud.” See the explanatory ruling here.

As seen, the right is obtained from the fulfillment of the material requirements included in Article 16, which cannot be subject to formal requirements, as that would attack the neutrality of the tax, a basic principle in VAT taxation.